Magazine edition: 4-2012

Article title:

Where will the world’s poor live?

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Where will the world’s poor live?

The distribution of global poverty is thus: half of the world’s poor live in India and China (mainly in India); a quarter of the world’s poor live in other MICs (primarily populous lower-middle-income countries (LMICs) such as Pakistan, Nigeria and Indonesia); and a quarter (or less) of the world’s poor live in the remaining lower-income countries (LICs).  

The proportion of the world’s $1.25 and $2 poor accounted for by MICs is, respectively, 74% and 79%. This suggests that using the $2 poverty measure - the average poverty line for developing countries - means that even more of the world’s poor live in MICs.

Indeed, closer analysis suggests a “new bottom billion” of extreme ($1.25) poor people in MICs and a further billion people living on between $1.25 and $2 a day.

It is important to note that low-income countries typically have higher rates of poverty incidence. That said, some middle-income countries do have surprisingly high poverty headcounts, even at the higher average level of per capita income found in MICs.

Across all middle-income countries, the average incidence of poverty is almost 20% of the population at $1.25/day, and 40% at $2/day. In the LMICs excluding India, this rises to 25% and 50% respectively. At a minimum, the fact that poverty persists at higher levels of average per capita income raises questions about the types of economic growth that lead some countries to reduce the number of people in poverty and other countries not to.

Why does it matter if the poor live in middle-income countries? Such patterns matter because they reflect a pattern of rising average incomes.  Although the thresholds do not mean a sudden change in countries when a line is crossed in per capita income, substantially higher levels of average per capita income imply substantially more domestic resources available for poverty reduction. Further, the changing distribution of global poverty away from the poorest countries (however defined), suggests an apparent “poverty paradox” – that most of the world’s extreme poor do not live in the world’s poorest countries. One interpretation of the shift in global poverty is that extreme poverty is gradually changing from a question of poor people in absolute poor countries to questions about domestic inequality.

But surely economic growth will end MIC poverty in the near future? The poor in middle-income countries could be disconnected from a country’s growth due to remoteness or marginalisation. The poor may also be relatively voiceless in domestic governance structures and potentially discriminated against in public services and public spending allocations regionally.

Indeed, if one looks ahead to 2020 and 2030 at least half of world poverty will be in MICs. And this could be as much as two-thirds of world poverty as some countries that are currently low-income countries move into the lower-middle-income country category.

This suggests the structure of world poverty will remain split between LICs and MICs.

The good news is the cost to end poverty could be minimal for those countries that are currently MICs as a percentage of GDP. In those countries that are currently LMICs the cost of ending $1.25 poverty is estimated to be in the range of 0.2% - 0.6% of GDP in 2020 and by 2030 at a similar level to end $2 poverty.

However, the estimated cost in those countries that are currently LICs of ending $1.25 poverty could remain high even in 2020 and 2030. This suggests that for a relatively small number of countries (24-30 LICs), external support for poverty reduction will remain essential.

The changing distribution of global poverty away from the poorest countries to middle-income countries suggests that a new approach to understanding and tackling extreme poverty is required and that global poverty is becoming a matter of national inequality.

MICs will need and want “traditional aid” less and less as domestic resources expand. However, concessional loans will still be useful even if grants are less appropriate given expanding resources. Policymakers in donor countries and MICs could work together by doing five things:

1. Developing a new joint focus on the chronic, long-term poor wherever they live and a new joint priority of ensuring the benefits of growth and public spending are equitably distributed;

 2. Focusing new joint resources to support the building of domestic taxation systems, and the regulation of tax havens and untaxed capital flight from MICs;

 3. Supporting inclusive policy processes with the poor by donor-government joint working with civil society in MICs;

 4. Co-financing global public goods including knowledge transfer on public policy between MICs and LICs;

 5. Ensuring coherence across donors development policies in trade, migration and so forth.

Andy Sumner is co-director of the newly established, King’s International Development Institute. He is an inter-disciplinary Development Economist with research interests in the fields of global poverty, economic development and inequality with reference to middle income and emerging economies.

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